MONEY – SAVINGS AND INVESTMENTS Economics

Time Value of Money  Saving is NOT Investing!  Saving is what people do to meet short term goals.  Investments assume interest will be earned over time.  Investing early can allow you earn more for the future.  Therefore, there is a time value of money when interest is applied – Present value & Future value.

Interest  The payment you receive for allowing a financial institution to use your money.  Is compounding – earning interest on your interest.  The Rule of 72 – you money is making more money even while you sleep. Video:

Types of Investments  Checking and savings accounts,  Certificates of deposit (CDs),  Money market accounts,  Treasury bonds,  Mutual funds,  Stocks,  Commodities  Video:

Risky Business  There are risks and reward for investing.  Sometime the market will be up and sometimes it will be down.  Different types of investments incur more or less risks (p. 33).  Video:

Bonds  Bonds are sold by companies and governments to raise money.  You are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out.  Relative safe investments - your investment is virtually guaranteed.  Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities.

Stocks  When you purchase stocks, you become a part owner of the business.  Entitled to vote at the shareholder's meeting and allows you to receive any profits in the form of dividends.  Compared to bonds, stocks provide relatively high potential returns.  A price for this potential: you must assume the risk of losing some or all of your investment.

Mutual Funds  A mutual fund is a collection of stocks and bonds.  You are pooling your money with a number of other investors, which in turn enables you (as part of a group) to pay a professional manager to select specific securities for you.  Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stocks, small stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, and stocks in certain countries.  The primary advantage of a mutual fund is that you can invest your money without needing the time or the experience in choosing investments.

The Power of Compounding  Reading on the webpage: The extraordinary power of compound interestThe extraordinary power of compound interest  Sections to read:  Saving is the key to wealth  The power of compounding  The growth of a single $5,000 contribution  The growth of annual $5,000 contributions

Askin’ all them questions…  According to this article, how do most people get rich or wealthy?  What is the difference between investing a single amount and investing a single amount plus annual contributions?  What happens if you wait until next year to invest instead of investing now?

Practice – Money: Savings & Investments  Chapter 11, Financial Markets, Chapter Assessment, pgs  Complete all